The company will pay S$240 million in financial penalties to settle corruption offences

 

[SINGAPORE] Shares of Seatrium : 5E2 -5.42% dived 5.4 per cent shortly after market open on Thursday (Jul 31) despite posting strong results for the first half of 2025.

 

On Wednesday, the engineering solutions provider announced that it would pay S$240 million in fines to Brazilian and Singaporean authorities to settle corruption offences. 

 

The counter dropped to S$2.27 at 10.19 am &ndash a fall of 5.4 per cent or S$0.13 from its Wednesday closing price of S$2.40. By 12.30 pm, it had crept up to S$2.30, but this was still 4.2 per cent down.

 

By market close, it was down 5.4 per cent again at S$2.27. It was the most-traded stock by volume on the Singapore Exchange on Thursday, with 41.8 million shares having changed hands.

 

For the six months ended Jun 30, Seatrium&rsquo s net profit surged 301.3 per cent to S$144.4 million, while revenue was up 33.7 per cent at S$5.4 billion.

CGS International analyst Lim Siew Khee believes Seatrium&rsquo s revenue could reach $10 billion for the FY2025 ending Dec 31 after the offshore and marine (O& M) company reported a &ldquo surprisingly stronger&rdquo revenue of $5.4 billion for the 1HFY2025.

 

&ldquo We believe Seatrium&rsquo s revenue is scalable as we understand that operating efficiency is at [around] 75% currently,&rdquo Lim writes in her July 31 report, adding that Seatrium&rsquo s 1HFY2025 formed 57% of her full-year estimates.

 

Seatrium, which also saw higher gross profit margins of 7.4%, double y-o-y, will continue to expand in the second half of the year as provisions for onerous contracts taper off. While the company&rsquo s 1HFY2025 gross profit margins fell slightly below Lim&rsquo s estimate of 8.3%, the analyst notes that the figure would have been at 8.6% if not for the $43 million in provisions for onerous contracts.

 

&ldquo We believe gross profit margin (GPM) improvement in 1HFY2024 was due to the execution of projects and ongoing cost optimisation efforts. Pure selling, general and administrative expenses (SG& A) as a percentage of sales (excluding depreciation and other impairment/write-offs) reduced to 2.9% in 1HFY2025 from 3.6% in 1HFY2024,&rdquo Lim writes.

 

&ldquo Deleveraging efforts are paying off as well &ndash with interest expense down 32% yoy to $90 million as Seatrium continues debt repayments cost of debt fell to 4.4% (FY2024: 4.9%),&rdquo she adds.

 

As such, the analyst believes more operating leverage is ahead as Seatrium carries out its P-series projects and lower provisions onerous contracts with the delivery of Manson Construction contract in 2HFY2025.

 

Despite Lim&rsquo s expectations of margin expansions in the 2HFY2025, the analyst has lowered her gross profit margin forecast to 8% from 8.3% for FY2025.

 

On its lower orderbook of $18.6 billion for the 1HFY2025, Lim estimates Seatrium&rsquo s order wins year-to-date to be under $1 billion. The 25% y-o-y decline reflects &ldquo the absence of new order wins during 2QFY2025 and progressive revenue recognition from major deliveries, such as FPSOs (floating production storage and offloading vessels) BW Opal and One Guyana.&rdquo

 

As management remains confident of converting a pipeline of opportunities worth around $30 billion into its orderbook in the near term, Lim has kept her order wins forecast of $4 billion for FY2025.

 

Following Seatrium&rsquo s July 30 announcement, when it finalised the details of Operation Car Wash with a final payment of $241.7 million to the Brazilian and Singapore authorities, Lim believes the key overhangs for the stock have been removed. No new provisions would also be required.

 

Lim has maintained &ldquo buy&rdquo on the stock with an unchanged target price of $2.80.

 

Overall, the analyst sees that the &ldquo worst could be over&rdquo for Seatrium and its 1HFY2025 results could be the &ldquo real inflection point&rdquo for margins and profits.

 

Looking ahead, re-rating catalysts include tight cost controls to improve its margins, order wins, potential gains from asset monetisation initiatives and higher dividends. On the flipside, cost overruns and project cancellations are downside risks.